Pay for performance contract terms differ in the same key ways that pay for performance and traditional grants differ – payments are based on outcomes instead of actions. Therefore, contracts must be designed to establish the required measurement and verification of, and base some portion of payments on, environmental outcomes. This includes payment upon initial verification of outcomes generated, as well as ongoing verification throughout a defined stewardship term, creating financial incentives for producers to generate and maintain environmental outcomes over time.
Three Essential Components to Pay for Performance Contracts
- Performance Metrics that define a consistent and repeatable method to measure the quantity and quality of environmental outcomes, and are aligned with long-term habitat or water quality goals.
- Verification processes that define who, how, and when performance is assessed.
- Outcome-Based Payment Terms that define the portion of payment linked to verification of environmental outcomes using the performance metric.
For more details, see the Key Distinctions of Pay for Performance Contracts Fact Sheet, which describes how typical contract elements differ between pay for performance contracts and traditional grant agreements.